Accelerators of SAP Product costing (CO-PC) design

[ratkevicius]

Product costing (CO-PC) set up always plays a vital role during SAP implementation projects. This SAP functionality is especially important for the industrial companies. Due to the complexity CO-PC modules are not very popular among SAP consultants. But from the other side such SAP specialists are in a great demand. Based on my professional experience I’ll share some requirements for SAP consultants which are extremely important for the CO-PC implementations, especially during solution design.

1. Good cross modular understanding of master data setup. As product costing is very integrated topic in order to feel comfortable during solution design, apart from controlling objects (cost elements, cost components, activity types, statistical key figures, templates), the knowledge of production (BOM, routing/master recipe, work center/resource, production versions) and procurement (purchase info record, source lists) data is of high importance. Moreover, in most cases financial consultants tent to focus on accounting and controlling views of material master. However, for efficient product costing consultants’ knowledge must be extended at least to MRP functions as well (UoM, material status, scrap %, procurement type, special procurement key, co product, bulk check boxes etc.). In this way all dependencies can be understood and validated in cross modular workshops.


2. Deep knowledge of manufacturing processes. Costing result is calculated combining quantities received from manufacturing with values set by finance/controlling. Therefore, there is no surprise that both parts must be accurate to get correct result. Product costing consultant together with manufacturing team must validate applicability of backflush process, the use of co/by products, scrap setup, bulk materials, interfaces with manufacturing execution system.


3. Clear understanding of client requirements on inventory valuation. It heavily depends not only on the nature of business (make to stock or make to order production) but also on the environment in which the company is working in (e.g. frequency of raw materials price changes, currency exchange rates fluctuations etc.). Only having in the mind these factors and, of course appropriate country low requirements, the right inventory valuation method (moving average price, standard price and actual price) and cost object (e.g. production/process order or sales order item) can be chosen. Solution design can impact the timing and accuracy of the product cost estimate, affecting a Balance sheet (general or sales order stocks) and P&L statement (cost of goods sold, purchase and production variances, revenue margin) accordingly.


4. Reasonable choosing between accuracy and simplicity – sometimes less is more. SAP provides a wide range of technical options on product costing design meeting almost any business special requirements. There are various methods of valuating 3^rd party materials, allocating overheads, absorbing and analyzing production or procurement variances. From this point of view it could be very tempting to propose the design that would give the most accurate result. However, it is necessary to keep in mind users’ efforts working with it on an everyday basis (especially during annual planning process and period end closings). Maybe the second-best alternative with just a small reduction of data accuracy would allow to significantly decrease the end users’ working once solution is implemented.


5. Follow up on SAP functionality trends within product costing area. Even keeping stable core business processes, changes in business environment (M&A process, globalization, intercompany trades, costing of services) makes SAP development team busy not only working on user experience improvements (Fiori, mobile apps etc.) but also building new functionality to meet the requirements of multinational companies. For a long time being only an ordinary part of local controllers’ activity, product costing overstepped boundaries of plant with the introduction of multiple valuations, transfer pricing and intercompany profit elimination. Design of such processes requires very close communication with the logistics department as costing and valuation should follow material flow, in addition impacting segregation of duties and users’ authorizations.

This article is based on my personal opinion after a few successful implementations in the past and does not necessarily represent the views of companies I am affiliate with.